The banking sector is under pressure despite strong second-quarter earnings results from major players JPMorgan Chase & Co. (JPM), Citigroup (C), and Wells Fargo (WFC), all of which beat analyst estimates. To dissect the financial sector, Barclays analyst Jason Goldberg joins Market Domination.
As far as the consumer impact on bank earnings, Goldberg notes that while lower-end consumers continue to face financial pressures, this demographic’s struggles may not significantly impact overall bank earnings. “It’s just not a huge contributor to revenues,” Goldberg explains, though he adds that “it’s certainly something to be mindful of.”
A trend Goldberg identifies in the bank earnings is a strong performance in their trading and investment banking divisions. He predicts that institutions with a focus in these areas, such as Goldman Sachs (GS) and Morgan Stanley (MS), may benefit from this trend in upcoming earnings releases next week.
However, Goldberg also points out a potential area of concern: “loan growth continues to be subdued.” This trend, he believes, will impact regional banks earnings.
For more expert insight and the latest market action, click here to watch this full episode of Market Domination.
This post was written by Angel Smith
Video Transcript
A complicated start to earning season for the bank shares of JP Morgan.
Wells Fargo and Citigroup are all under pressure after their numbers, Wells Fargo’s second quarter profit declining from a year ago.
While JP Morgan and city beat estimates concerns over net interest income has been weighing on those stocks and joining us now, Jason Goldberg Barclay, senior equity analyst, Jason thanks a lot for being here to help us make sense of what we heard from the banks.
I I wanna um mention a comment from the Wells Fargo CFO um because it seems to be specific, not just to Wells Fargo, but what we’re seeing in the bigger picture and he said, when you really dig into what’s happening across different consumers, the folks on the lower end of the wealth or income spectrum are struggling more.
How much of a problem is that for the banks now and will continue to be, you know, it’s certainly something to be mindful of when you think about the lower end consumer, they benefited the most from all the stimulus activity we saw coming, you know, out of the pandemic and that has certainly um kind of gone away.
And at the same time, you have elevated inflation.
So things like, you know, food energy prices are more and then that cohort tends to rent more and you know, doesn’t have the benefit of low yielding fixed rate mortgages locked in from a couple of years ago.
So there is, you know, some pressure there as it relates the banks.
Um you know, it’s just not a huge contributor um to revenues while the big banks tend to be big, big in credit card, which is an area to be mindful of.
Um, you know, they tend to focus more on the higher fico’s customer base.
So it’s, it’s certainly something that, you know, weighs a little bit on overall results, but I think not something that overly concerns us in here, Jason Le let’s stick with city.
Um You know, co Jane Fras, of course, pursue pursuing a, a big turnaround there.
Um You’re on the sidelines though.
Uh Jason equal weight, how come listen, it just takes a long time to turn a big ship and that’s a very big ship.
And I think, you know, you, you got the news um you know, uh earlier in the week that they had a, you know, didn’t fully resolve one of their consent orders way back from 2020 and under kind of increased scrutiny from the OCC now.
And, you know, listen, there’s gonna be some bumps in the road, so they’ve made a lot of progress, particularly under Jane’s leadership.
Um, just more work to do and it’s gonna, it’ll take, um, it’ll take some time, you know, for them to get even back to a low teens rot CE.
And I think they’re targeting 2026 where earlier today, that names like a JP Morgan, put up a, you know, a 20% plus rot CE already.
So when you look across the banks, both who we’ve heard from thus far and who is yet to report, who do you think is best positioned right now?
And what seems like sort of a muddling along environment in some ways?
Yeah, you know, if you look at kind of the trends that we’ve seen, you know, today, we saw particularly strong trading and investment banking results.
Um So early next week, we heard from Goldman Sachs and Morgan Stanley and we think they’ll benefit um from those trends on the flip side, you know, loan growth continues to be subdued while you’re seeing upward pressure for both, you know, non-performing assets and, and, and loan losses, um which kind of the regional banks are over exposed to.
So those are kind of, I think the themes that we will be paying particular attention to is, you know, more and more banks report over the next couple of weeks.